Delaware regulators have agreed to end a three-year court battle to implement a regulation that would restrict the ability of an insurer to nonrenew a homeowner's policy based on claims history, insurance trade groups said today.

The nonrenewal issue is now in a bill being considered by the Legislature.

The American Insurance Association (AIA) and the Property Casualty Insurers Association of America (PCI) said they and the Delaware Insurance Department had agreed to a "stipulation of dismissal" for the case that was pending before the Delaware Supreme Court.

Insurer groups had successfully challenged the department's Regulation 703, but the department had been appealing it.

AIA and PCI originally filed a complaint seeking declaratory relief in New Castle County Superior Court on Oct. 31, 2005. They argued that the department did not have statutory authority to adopt Regulation 703 and asked the court to find that the regulation was null and void without force or effect.

The Superior Court ruled in favor of the organizations on the merits Jan. 2, but the department filed the appeal, which they agreed to dismiss.

A statement from Eric Goldberg, AIA associate general counsel, said the group is pleased with the outcome. "Regulation 703 was wrong on three counts. First, a regulatory agency cannot make new law. Second, it reflected a fundamental misunderstanding of how insurance underwriting works. Third, it was overly restrictive and far exceeded the scope of similar state laws throughout the country."

Richard Stokes, PCI regional manager and counsel, said the insurance industry had initially offered to work with the department "to resolve the issue for the benefit of consumers prior to filing the complaint. The final regulation was adopted as initially proposed."

He said the case involved "an important constitutional issue. There was no statutory basis for the proposed regulation. By seeking to go beyond the statutory powers of the office, the proposal raised important separation of powers issues."

The insurer groups said Regulation 703, titled Prohibited Practices Related to the Nonrenewal of Residential Homeowners' Policies, "violated a very fundamental principle of administrative law: a regulatory agency cannot make new law under the guise of administrative agency rulemaking. This privilege is reserved for the legislature and the courts."

They added that the regulation proposed on Oct. 1, 2005 "would have severely restricted the ability of an insurer to nonrenew a homeowner's insurance policy based on claims history. Claims history remains a key, objective underwriting tool that insurers use to predict additional future losses. If enacted, Regulation 703 would only have served to increase the costs of homeowners with good loss experience by forcing them to subsidize the insurance costs of those with poor loss experience."

AIA and PCI noted that the Delaware General Assembly is currently considering a bill (S.B. 191) which addresses restrictions on homeowners' insurance policy cancellations.

According to the organizations, that bill "provides a balance that assures consumers receive important benefits while providing insurers the ability to offer homeowners' insurance in a more stable regulatory environment."

They said this agreed-upon compromise version of the bill is similar to laws in many other states and is expected to be considered by the legislature today. AIA and PCI added they are hopeful of final passage and signature by the governor.

Special Reports /

Insurance Trade Groups Defeat Delaware Nonrenewal Rule

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